Break Things and Move Fast

[blackbeen]

Hello,

Today's WSJ has a review of Jonathan Taplin's Move Fast and Break Things. The review is "Whose Song Is It, Anyway?" According to the review, the book looks at how the platform companies such as Facebook, Amazon and Google have cashed in on content provided by others, while little of that money goes back to the content providers. While the book focuses on music (the author is a well known music producer), it also delves into ebooks and video. According to the review, the book advocates a change in the safe harbor clause of the DMCA and other changes to things such as fair use.

Based on the review, I probably won't buy the book. However, the main thing that I took away from the review is that right now, the digital media battle is divided into three main groups - content providers, platform providers and consumers - each with very different priorities. Both content providers and platform companies have very deep pockets and know how to play the game to the laws changed in their favor. I suspect that the consumer will once again be on the outside looking in.

[pwalker8]

Can't really disagree with your last sentence.

The major thing that I take away from the battle between platform and content provider is that perhaps in the long run, the push back by platform providers will be a good thing for consumers. Perhaps it will help the pendulum swing back a bit from overwhelmingly favoring content companies.

[j.p.s]

And of the little money that makes it back to content providers, even less makes it back to content creators. The content providers and platform providers are both middlemen.

[pwalker8]

Originally Posted by j.p.s

And of the little money that makes it back to content providers, even less makes it back to content creators. The content providers and platform providers are both middlemen.

True enough. Of course, in that respect books are somewhat different than music and video, though music is much closer than video is.

[fjtorres]

Originally Posted by j.p.s

And of the little money that makes it back to content providers, even less makes it back to content creators. The content providers and platform providers are both middlemen.

True.
The problem creators face varies by industry, though.

Movies and video are team efforts--screenwriters/producers/directors/actors, lyricist/composer/producer/performer--and most often the product is owned by a corporation of one kind or another. It can be a small partnership or it can be a giant foreign multinational and the actual creators can be owners of the company or the product or merely paid employees punching a time card.

Rarely do you a single person movie. Even indie movies are a team effort beholden to one company or another. Typically financiers or distributors, often both.

Music there has long been an alternative but mostly it was just an entry to the corporate side and only in the last couple of decades has it become viable to be fully independent for most or all of a career. A lot of the griping by musicians these days is that digital music (and streaming in particular) is a bulk and backlist business and (except for the biggest names) pays bulk rates. And with streaming eating up a lot of consumer music spending discrete sales are way down so creators are left with only performance as a major revenue stream. Which of course goes mostly to the performers. The rest of the team is getting shorted, compared to previous eras.

Music does stand alone in the depth of the hole it is sliding in.
Big big mess and streaming is only part of the problem. It is most definitely *not* part of the solution, revenue-wise.

The thing is, there really isn't much money in streaming. And what money there is is comparable to radio, not the traditional sales channels. So it pays radio-like royalties. And even then, streaming is a money losing venture because most of it already goes to the studios.

Spotify dreams of breakeven, Pandora is a regular loser, and Beats is the third rebranding of Microsoft's music efforts so its a safe bet it's barely treading water. AmazonMusic is new and comingled with PrimeMusic so its profitability is almost certainly marginal. Apple Music doesn't even need to make money.

Spotify is the biggest streaming service, right?
Here's its profitability:

http://fortune.com/2018/05/30/spotify-ipo-profit/

(Short version: zilch.)

To give the music industry the cash flow it grew accustomed to would require something like a $30-50 a month subscription and who would pay that?

The music industry's problem is they great fat dumb and lazy in the CD era. They not only replaced the $5-8 vinyl LPs with $12-15 CDs, they killed the $1-3 singles and the less profitable tape formats. Better yet, true fans of successful acts spent like crazy buying older content on CD. Money just rolled in.

Then digital rolled in.
CDs were easily ripped. And there always was a large market for used discs.
The industry was so happy milking the CD boom they ignored consumer irritation over the pricing...until it got Napsterized.
They were late in moving to digital but eventually after a lot of battles they managed to mitigate the losses.

The problem is, Digital sales exposed the unsustainable economics of the CD music album: a typical music might carry two or three hits, maximum. In the vinyl era that was about right because the album to single price ratio was about three to one anyway. If a fan found more than three songs they liked, even if they weren't all radio hits, getting the album made sense. The filler tracks were a bonus. If they didn't satisfy the loss was minor.

Once digital hit, though, paying $10-15 for an album that might at best have three great songs (if that) became riskier than paying $3 for the three known good songs. The album to single cost ratio of 10/15 made little economic sense. Historically, most musical acts to hit the national scene are one hit wonders. Here today, gone tomorrow, with the one catchy song as their legacy. (Many more didn't even get that.)

Digital singles brought the music industry economics back to the 60's and seventies.
And streaming brought it back to the 40's and 50's.

Check the chart here:
(Make sure to click adjusted for inflation.)

https://www.riaa.com/u-s-sales-database/

And that is only to the seventies.
I couldn't find sales data for earlier periods, but you can see the changing scale by looking at sales for the top annual sellers here:

https://en.m.wikipedia.org/wiki/List..._United_States

Harry Belafonte's 1956 "Calypso" was the first LP record album to sell over one million copies. A few singles, including Glenn Miller's "Chattanooga Choo-Choo," Bing Crosby's "White Christmas," and Tennessee Ernie Ford's "Sixteen Tons" had previously made it to a million but no album.

Ten years later, the top seller made it to 6 million.
In 1976, the top seller moved 8 million.
By 2017 the top seller, Ed Sheeran, moved 1.7 million physical copies plus another million in digital.

https://www.officialcharts.com/chart...-chart__21316/

It all comes down to the fact that music listening has reverted to the mixed-playlist model of radio, focusing more on specific songs than on album listening. More, lots of consumers are comfortable with the "free" ad-supported radio-like services from Spotify and Pandora. Spotify, for example, has more free users than paid subscribers.

https://www.macrumors.com/2018/11/01...d-subscribers/

This reckoning was a long time coming: lots of mistakes, over decades, are now piling up.
Just as with books, consumers have a lot more choices for their entertainment and are spreading it around on gaming, movies, sports bingeing TV series.

Music and books aren't the only games in town and for a whole lot of people neither is the top choice or even close to the top.

Neither griping nor government action will change that.

[DNSB]

Originally Posted by j.p.s

And of the little money that makes it back to content providers, even less makes it back to content creators. The content providers and platform providers are both middlemen.

Reminds me of the tax on blank recording media (mostly CDs) which was supposed to go the recording companies, authors, publishers and artists to compensate for people copying music. Ghod alone knows how much was lost to the CPCC's bureaucratic overhead in managing the program but one top 20 Canadian recording artist based on commercial radio airplay and commercial sales was quoted as having received a cheque for $2.50 in the first year of the program

[DuckieTigger]

Originally Posted by fjtorres

Spotify, for example, has more free users than paid subscribers.

That is not surprising. There really is little to no benefit from paying. The ads are much less obnoxious than radio. With radio it usually is impossible to have more than two songs in a row without the announcer interupting. Spotify doesn't allow selecting any song with unpaid on mobile devices, but you can still select any album and shuffle play that. Or everything from same artist / band. Also the selection is the same with free or paid. That is probably the biggest mistake Spotify can make (same as Pandora).

Amazon has at least an incentive to pay for unlimited as the selection gets bigger compared to the music included with Prime. Personally I am not interested in paying extra as my listening needs for streaming is very well covered by free Spotify, free Pandora, and Amazon Prime Music.

[tubemonkey]

Originally Posted by DuckieTigger

Spotify doesn't allow selecting any song with unpaid on mobile devices, but you can still select any album and shuffle play that.

These two features plus creating playlists and downloading to mobile devices are why I pay for Spotify.

[pwalker8]

Originally Posted by tubemonkey

These two features plus creating playlists and downloading to mobile devices are why I pay for Spotify.

I don't have Spotify, but I do pay for both Pandora and Apple Music. Apple Music is a big money maker for Apple.

[DuckieTigger]

Originally Posted by pwalker8

I don't have Spotify, but I do pay for both Pandora and Apple Music. Apple Music is a big money maker for Apple.

How is Apple Music a big money maker? If Spotify is barely scraping by, then Apple Music cannot be hugely profitable at the same prices. Unless, of course, Apple pays near nothing to the content providers.

Unless you are talking about Apple Music unlimited subscription as loss leader to lure people into buying Apple devices?

[fjtorres]

Originally Posted by DuckieTigger

How is Apple Music a big money maker? If Spotify is barely scraping by, then Apple Music cannot be hugely profitable at the same prices. Unless, of course, Apple pays near nothing to the content providers.

Not necessarily near nothing but they might have secured a capped payout deal with the studios. A variation of the Kindle Unlimited model where a studio is guaranteed a big minimum payout and Apple is guaranteed a cap on how high payments go.

Alternately, maybe Apple customers barely use the service.
iTunes is still active and their users are conditioned to pay for what they get.
Apple music might be feeding sales to iTunes just as KU feeds KDP. Of course, KU offers a subset of what the Kindle store carries...

Most subscription service costs vary as a function of subscriber consumption but their revenues are capped by the number of subscribers. If the customer base as a whole is a "voracious" consumer, the service ends up in the red. Remember Scribd and Oyster, especially the latter.

It might simply be that what makes Spotify desirable is what makes their cost structure high.

Pandora and Spotify are standalone companies so there is some translucence into their operations but the other services are extensions of their native ecosystems so they won't necessarily define profitability the same way.

I notice Spotify has lately started to offer bundles with Hulu. Maybe trying to reduce subscriber use? It's a weird business when you want your customers to use your service less.

[pwalker8]

Originally Posted by DuckieTigger

How is Apple Music a big money maker? If Spotify is barely scraping by, then Apple Music cannot be hugely profitable at the same prices. Unless, of course, Apple pays near nothing to the content providers.

Unless you are talking about Apple Music unlimited subscription as loss leader to lure people into buying Apple devices?

You can do anything with accounting. Hollywood is notorious for movies that are blockbusters not netting a dime.

It could simply be that since Apple Music, the subscription service, is built on top of the iClouds/iTunes infrastructure and cost Apple very little extra. Maybe Spotify spent all their money on keg parties and bonuses. Maybe they are reinvesting their money in infrastructure, just like the sainted Amazon did for so many years. Maybe they aren't barely scrapping by. Just remember, just because some guy reports some figures that he saw on some guy's web site, doesn't make them accurate. Who knows.

[Apache]

Originally Posted by pwalker8

You can do anything with accounting. Hollywood is notorious for movies that are blockbusters not netting a dime.

Years ago a number of stars made the mistake of getting a contract for a percentage of net profits, on blockbuster movies, and never saw a dime.
Apache

[John F]

FWIW:

"Apple Music Is Boosting Services Revenue, but Not Profits"

Https://www.fool.com/investing/2018/...but-not-p.aspx

[pwalker8]

Originally Posted by John F

FWIW:

"Apple Music Is Boosting Services Revenue, but Not Profits"

Https://www.fool.com/investing/2018/...but-not-p.aspx

The key words in that story are estimates and models, i.e. the writer doesn't know the actual numbers but he guesses at what he thinks they are and plugs that into his spreadsheet. Anyone who follows this sort of stuff knows how the game is played. It's the same way various analyst guess at iPhone sales (since Apple doesn't release those numbers), they talk to some people who might work for companies who sell parts to Apple, plug those rumors into spreadsheets and produce WAG numbers. Over the years, those estimates seem to be wildly off, based on earning calls, but they are numbers and can drive stock buys and pull backs.

I frequently wonder at why people latch on to guesses that people who actually know the numbers call off by several magnitudes and take those guesses as gospel. I guess it's just human nature to latch on to something in the face of uncertainly even if it's wrong.